New research released Thursday by the Employee Benefits Research Institute found that the percentage of households that were on track for retirement before the financial crisis hit but that are now at risk varies from between 3.8% and 14.3%.
Early boomer households that need to save more for retirement should look to increase their contribution to retirement accounts by 3% of their income each year until they retire, if they want a 50-50 chance of "retirement income adequacy." For a 90% chance of having sufficient retirement income, those households would need to increase their contributions by 4.3% of compensation.
EBRI notes that the definition of "at risk" varies based on what type of model is used to predict retirement needs. The report assumes all workers retire at age 65 and begin withdrawing money from their retirement accounts when their basic expenses and uninsured medical expenses exceed their after-tax annual income from Social Security and any defined-benefit plans.
Over 47% of early boomers were estimated to be at risk of retirement shortfalls in 2010, according to the report; 43.7% of late boomers were at risk. The Center for Retirement Research's National Retirement Risk Index, however, showed "significantly higher at-risk percentages" for younger cohorts, according to the report. CRR used data from the 2007 Survey of Consumer Finances to find that 41% of early boomers and 48% of late boomers were at risk of retirement shortfalls.
The most likely reason for the disparity between the two reports, according to EBRI, is the way the two reports treated defined-contribution account balances in the future. EBRI's model factors in trends toward automatic enrollment in 401(k) plans, automatic escalation of contributions, and the increased use of target-date funds in retirement plans.
Unsurprisingly, more affluent investors are least likely to be at risk of retirement shortfalls, according to the EBRI report. Over 23% of the highest income group was at risk, compared with 41.6% of the middle-income group, and 70.3% of the lowest income group.